A Housing Bubble Within a Bubble

by: MarkNelson

I have been sitting on the sidelines renting now since 2004 and patiently waiting, and waiting, and waiting for the right time to buy a home for my family. It has been a considerable sacrifice being a "renter" going on four years now, and my wife is getting pretty fed up (although she does logically understand the concept of leveraged losses on big ticket assets).

Well, I was beginning to get pretty excited that the return of pricing back to 2001-ish levels might be coming up pretty soon, possibly in 2009 - 2010, but then I came across another even more disturbing article "Aging Baby Boomers and the Generational Housing Bubble: Foresight and Mitigation of an Epic Transition". This excellent article, published 12/31/07 by the Journal of American Planning Association, describes what I had been thinking for some time, but had been essentially ignoring because it had not yet been quantified for me. The article describes that underlying the current housing boom (bubble) there has been a larger generational, boomer-driven demand function for housing also at work (i.e. a long-term bubble). This net-buyer phenomenon has driven an increased need for housing formation beginning in the 1970's when the first baby boomers entered the home buying age group. As more and more boomers became home buyers it fueled increased home construction and move-up purchases, driving the whole housing food chain. This article does a very good job of laying out the state-by-state demographics for when the boomers begin to retire, down-size and start becoming net-sellers of housing. There is a cross-over at about age 65 when the sell-rate exceeds the buy-rate for housing. As the first wave of boomers will be reaching that milestone in just a couple of years, it will begin to exert ever-increasing downward pressure on home prices as more and more supply comes onto the market.

I live in the Northeast and it doesn't look pretty over the next decade. Unfortunately, this has taken out a position that I was betting on, where I could buy-in relatively soon (1-2 years) and not be so concerned whether I had caught the absolute bottom of the market because the longer-term upward pricing trend would reestablish itself, so over, say, a 10-year holding period I would be fine. Now I'm not so sure. Kind-of makes you wonder what other underlying long-term bubbles might have been blown by the boomers (don't get me wrong, I do love you guys.)

Does anyone know of a good long-term family-oriented rental solution? I have yet to break it to my wife that we may be renting forever.


Myers, Dowell and Ryu, SungHo (2007) 'Aging Baby Boomers and the Generational Housing Bubble: Foresight and Mitigation of an Epic Transition', Journal of the American Planning Association, 1 - 17